The Group Size Paradox Revisited

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AbstractEsteban and Ray (2001)model an increasing marginal cost of effort in providing a public good. If the marginal cost of contribution function has an elasticity greater than 1, then the level of provision is increasing in group size, regardless of the degree of rivalry of the public good. We modify their model to a standard public goods setting, where their results continue to hold. We then add small fixed costs of participation to the model. If the good is sufficiently rival, one ofOlson's (1965)central propositions is restored: public goods will fail to be provided in large groups.